The February IIP numbers took everyone by pleasant surprise. Coming in at 5% v/s 2.6% in January, this was much more than what was expected by majority of analysts. This is reportedly a 18-month high and the best news here – manufacturing activity was at its best, it grew at the fastest pace in past four months and this is probably what drove up the IIP to this 5%. Manufacturing rose on the back of higher production and new orders.

There is most certainly the base effect at play too but that alone cannot be the reason; that would be indeed trivializing the entire growth seen in February. In terms of IIP internals, mining output was up 2.5% v/s 2.3% (YoY), consumer goods at 5.2% v/s -5.2%, manufacturing at 5.2% v/s 3.9%, electricity at 5.9^ v/s 11.5%, capital goods at 8.8% v/s -17.6%, consumer durables at -3.4% v/s -9.7%.

IIP is compiled using data received from 16 source agencies viz. Department of Industrial Policy & Promotion (DIPP); Indian Bureau of Mines; Central Electricity Authority;  Joint Plant Committee; Ministry of Petroleum & Natural Gas; Office of Textile Commissioner; Department of Chemicals & Petrochemicals; Directorate of Sugar; Department of Fertilizers; Directorate of Vanaspati, Vegetable Oils & Fats; Tea Board; Office of Jute Commissioner; Office of Coal Controller; Railway Board; Office of Salt Commissioner and Coffee Board.

In terms of industries, 15 out of the 22 in the manufacturing sector have shown positive growth during the month of February 2015 v/s Jan’15. The industry group ‘Wearing apparel; dressing and dyeing of fur’ has shown the highest positive growth of 62% followed by 35.8% in ‘Electrical machinery and apparatus n.e.c.’ and 19.6% in ‘Wood and products of wood & cork except furniture; articles of straw & plating materials’. On the other hand, the industry group ‘Office, accounting & computing machinery’ has shown the highest negative growth of (-) 44.6% followed by (-) 43.4% in ‘Radio, TV and communication equipment & apparatus’and (-) 8.2% in ‘Other transport equipment’.

On the other hand, some of the important items showing high positive growth during the current month over the same month in previous year include ‘H R Sheets’ (216.3%), ‘Leather Garments’ (151.8%), ‘Polythene bags including HDPE & LDPE bags’ (131.6%), ‘Cable, Rubber Insulated’ (63.5%), ‘Vitamins’ (60.5%), ‘Stainless/ alloy steel’ (57.0%), ‘Apparels’ (52.5%), ‘Conductor, Aluminium’ (48.5%), ‘PVC Pipes and Tubes’ (44.9%), ‘Block Board’ (34.2%), ‘Carbon Steel ’ (27.4%) and ‘Air Conditioner (Room)’ (27.4%)

And those showing negative growth included Heat Exchangers’ [(-) 54.7%], ‘Electric Sheets’ [(-) 53.9%], ‘Telephone Instruments (incl. Mobile Phones & Accessories)’ [(-) 51.7%], ‘Computers’ [(-) 51.5%], ‘Furnace Oil’ [(-) 37.5%], ‘Ship Building & Repairs’ [(-) 34.8%], ‘Tractors (complete)’ [(-) 29.8%], ‘Boilers’ [(-) 28.8%], ‘Generator/ Alternator’ [(-) 28.7%] and ‘CR Sheets’ [(-) 21.7%].

To a large extent it would be no exaggeration to say that IIP seems to have lost a lot of relevance with the markets really giving too much credence. But what is sure to get its attention on Monday is the CPI number for March. Inflation, be it CPI or WPI, the markets will watch it like a hawk as that is the number which the RBI also keeps a watch on.